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Fortune favours the cautious…

Fortune favours the cautious…
While the Q1 2015 Bellwether Report may reveal a boost to the top-line, the real story lies in how these latest findings will affect talent, tech, training and targets, argues the IPA’s Finance Director Tom Lewis.

With 10 successive quarters of growth and all indicators in the latest Bellwether showing positive, the real story here is not about economic improvement; a rising top line, welcome as it is, is not the whole story.

With the outlook as rosy as it's been in a long time, we need to remember that it is only the paranoid that survive.

Or to put it another way, with the sun shining this much, you would be well advised to check out the state of your roof and carry out any necessary repairs in order to stay ahead of the competition.

The short-term story is the political uncertainty of the general election; I'm not even going to attempt to call that one.

But the longer term view is to look at what challenges a rising tide inevitably brings with it; the most immediate challenge is talent - an improving climate makes for a seller's market. Talent will only get harder to recruit and retain, which can put pressure on the bottom line regardless of what the top line is doing.

The much-cited rate of technological change means that up-to-date skills will ever more in demand - doubly so at mid-management level on the back of some very lean years.

Top-line growth can also stretch working capital cycles; some clients have famously been asking for extended payment terms and the best time to arrange an overdraft facility is of course when you don't need it.

Operationally, now is a good time to invest in training - especially commercial skills whose payback can be measured closely. Build an extended programme, claw back some provisions and appropriate rewards for success and you will have both incentivised and locked in your top talent.

Or it may just be a case of rebuilding reserves for independents who have used them up throughout the last recession.

Finally, don't forget to invest in growth - be it new / enhanced service offerings, a marketing refresh, entering more IPA Effectiveness Awards or updating the business's growth targets.

It is not always possible to do all of these at once and priorities have to be made. A good mid-term forecast allows the time to take these decisions at a sensible pace.

Tom Lewis is also the IPA's Commercial Acuman and is on hand to answer any profit-and-loss-related questions you may have in his monthly advice column.

Last updated 16/04/2015

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